About Graeme Bursack - Partner

T +44 (0)20 7874 8813

Graeme is a highly experienced company advisor with an extensive portfolio of commercial clients in virtually all sectors of commerce and industry. He has considerable experience in the development of new and existing entrepreneurial businesses, and over the years has assisted in the launch of many new business ventures.

Graeme is passionate about recruitment in terms of helping clients find the right talent but also advising those operating in the recruitment sector.

He has advised companies operating internationally throughout his career and is the representative partner of our international association, GMN International. In October 2015 he was appointed to the GMN International Management Committee.

UK holding companies should review Double Tax Treaties with those countries where subsidiaries are located to consider the potential cost impact of Withholding Taxes being levied.

UK holding company with EU subsidiaries?

A very common scenario we see is a UK holding company with subsidiaries scattered across the EU. In this scenario, profits may be paid up by the subsidiaries to the holding company by way of dividend, usually free of withholding tax under EU directives. A similar situation currently exists for certain interest and royalty payments.

The threat of withholding tax after Brexit

However, in under a year, the UK will have left the EU. Exactly what arrangements will be in place after we have left are still unknown. But, once we have left, it may well be the case that dividends paid up from EU subsidiaries to a UK holding company may well be subject to withholding tax, (depending on terms of any Double Tax Treaty between the countries concerned). Likewise, maybe, with interest payments, royalty payments, rents and certain other payments.

Review Double Tax Treaties with the countries where you have subsidiaries

Given the high rates of withholding taxes, UK holding companies should review Double Tax Treaties with those countries where subsidiaries are located to consider the potential cost impact of Withholding Taxes being levied. It may be appropriate to consider restructuring operations.

When an overseas individual or company has decided to set up a business in England*, they will have considered location and logistics, suppliers, rental or purchase of office and production facilities, and a whole host of other practical operational issues.

They will have considered such matters as whether to trade via a company or branch (although they may not know that the status of overseas individuals working in the UK can be different in a UK Limited company compared to a UK branch). If operations are via a company, they will consider whether that is a UK Limited Company, LLP or some other special purpose vehicle. They will have considered corporation tax rates, capital allowance, income tax rates, VAT, extraction of profits and double tax treaties. But employment law is often forgotten, and, if not handled properly, can be both time-consuming and costly if employee relations go wrong.

Easing the burden for business

Earlier this month the qualifying period for unfair dismissal increased from 1 year to 2 years of continuous employment. That means that for all employees starting employment after 6 April 2012, the employee will not be able to claim that their dismissal was procedurally or substantially unfair in their first 2 years of continuous employment.

This contrasts with other, particularly European, jurisdictions where employers are bound by very strict dismissal procedures and the need for employers to justify their decision to dismiss, once the employees fairly short probation period has expired.

In 2013 further measures are likely to be introduced, which will require the employee to pay a fee for bringing a claim against their employer. In addition, the government is planning on introducing new rules which are designed to give employers the power to have ‘frank discussions’ with employees. These will be will be held outside formal ‘performance’ or ‘disciplinary’ procedures, without fear of facing employee discrimination claims, and will include talks on underperformance as well as discussions over whether or not an employee should consider retirement.

In addition, there are proposals to cut the length of the consultation period in redundancy situations, to speed up the whole process.

The above changes are all aimed at reducing the ‘red tape’ and easing the burden for businesses in the current economic circumstances.

This all sound like good news for the employer?

Although employers in England will be able to dismiss with less than two years continuous employment without the need to give any reasons or follow any formal procedures, they need to be aware of other areas of the law, and correctly follow procedures so as to minimise the risk of a claim.

This is because employees can claim ‘discrimination’ under the Equality Act 2010. The act covers nine protected characteristics, which cannot be used as a reason to treat people unfairly. Every person has one or more of the protected characteristics, so the act protects everyone against unfair treatment. Notice that I use the word ‘people’ rather than ‘employee’ here, because a claim can be brought under this heading even before employment actually starts, ie at the recruitment interview stage!

There are nine ‘protected characteristics’ where discrimination can apply:

The new auto-enrolment pension scheme being introduced by the government places additional cost burdens on both employees and employers. Employers need to cost these into budgets and forecasts.

There are possibly other measures in the offing. We are currently awaiting the governments’ response to the Modern Workplaces Consultation. This covers the possibility of flexible working, giving the right to all employees, not just those with young children, to request flexible working (either ‘part-time working’ or ‘working from home’ arrangements).

In summary

This brief sprint through some current employment issues shows that the government has gone some way in reducing the burden of ‘red tape’ faced by businesses.

However, as you can see, the employer setting up in England needs to be well briefed. Policies and procedures need to be clearly set out and followed. But it is also important to be properly advised, as attention has to be paid not only to current legislation, but also to potential future legislation, and the impact this can have on the UK business.

* Note – ‘England’ includes Scotland and Wales, (but not Northern & Southern Ireland or the Channel Islands, where employment law differs)